Owning a chicken and chips shop in the UK is all about keeping customers happy with crispy fries and juicy wings. But when it comes to VAT, things can get a bit greasy.
If your purchases—like raw chicken, potatoes, or oil—are mostly VAT-free (from non-VAT-registered suppliers), yet you charge the standard 20% VAT on sales, the VAT Flat Rate Scheme (FRS) could simplify your life and fatten your profits.
In this blog, we’ll break down how the FRS works for chicken and chips shops in this scenario, its perks, and whether it’s the right move for your takeaway. Let’s dig in!
The VAT Flat Rate Scheme: What Is It?
For companies with a taxable turnover of £150,000 or less (without VAT), HMRC offers a simplified VAT scheme called the VAT Flat Rate Scheme.
A fixed percentage of your VAT-inclusive turnover is paid to HMRC instead of input tax (VAT paid on purchases) and output tax (VAT charged on sales) being subtracted to get the VAT calculation.
This has the potential to revolutionize a mobile accessory business that deals with low-value-added tax purchases.
Eligibility for Your Chicken and Chips Shop
To qualify for the FRS, your business must:
- Be VAT-registered.
- Have an annual taxable turnover of £150,000 or less (excluding VAT).
- Stay in the scheme until your VAT-inclusive turnover hits £230,000.
- Not be tied to another business under HMRC’s “associated business” rules.
If you’re frying up meals and charging 20% VAT to customers, while sourcing ingredients from suppliers who don’t add VAT (e.g., local farmers or small traders), you’re likely in the clear to join.
Flat Rate Percentage for Chicken and Chips Shops
Your flat rate depends on your business type. For a chicken and chips shop, the closest HMRC category is typically “Retailing food, confectionery, tobacco, newspapers or children’s clothing”, which carries a flat rate of 4%.
This low rate applies because takeaways sell food items, even if they’re hot and prepared.
But here’s the catch: if your spending on goods (e.g., ingredients or packaging) is less than 2% of your VAT-inclusive turnover or £1,000 per year, you’re a “limited cost business” and must pay 16.5% instead.
Since many chicken and chips shops buy VAT-free supplies and rely on labor (e.g., staff wages), you might fall into this category. Check your goods costs to see which rate fits.
First-Year Discount
If your shop is in its first year of VAT registration, you get a 1% discount—dropping 4% to 3% or 16.5% to 15.5%. This can give your new takeaway a tasty financial boost.
How the FRS Works for Your Takeaway
Let’s crunch the numbers for a chicken and chips shop with VAT-free purchases and standard-rated sales:
1 Charging VAT: You sell £1,000 worth of chicken and chips (excluding VAT). At 20% VAT, customers pay £1,200 (including £200 VAT).
2 Paying HMRC: Using the 4% flat rate:
- VAT-inclusive turnover = £1,200
- VAT payable to HMRC = £1,200 × 4% = £48
- Profit retained = £200 (VAT charged) – £48 (paid to HMRC) = £152
3 No Input VAT: With VAT-free purchases, you’ve got no input tax to reclaim—making the FRS a juicy deal.
If you’re a limited cost business (16.5% rate), you’d pay £198 (£1,200 × 16.5%), leaving just £2 per sale—hardly worth the fry-up.
Why the FRS is a Winner for VAT-Free Purchases
For a chicken and chips shop with mostly VAT-free suppliers, the FRS is a sizzling opportunity:
- Extra Cash: At 4%, you keep £152 of every £200 in VAT you collect—a huge win compared to handing over the full £200 under the standard scheme.
- Less Paperwork: No need to track VAT on purchases—perfect for busy nights flipping wings and chips.
- Cash Flow Boost: That £152 can go toward better fryers, more stock, or a neon “Open” sign.
Potential Pitfalls to Chew On
The FRS isn’t all gravy—here’s what to watch:
- Limited Cost Business Risk: Low spending on goods (common with VAT-free suppliers) could bump you to 16.5%, slashing your VAT profit.
- No VAT Reclaims: If you buy VAT-able items like a new grill or packaging, you can’t reclaim that VAT unless it’s over £2,000.
- Turnover Cap: Hit £230,000 in VAT-inclusive sales (easy with a popular takeaway), and you’re out of the scheme.
Is the Flat Rate Scheme Right for Your Chicken and Chips Shop?
If your purchases are mostly VAT-free and your turnover stays under £150,000, the FRS at 4% is a no-brainer.
It turns VAT into a cash cow instead of a chore—perfect for a lean takeaway operation.
But if you’re teetering on the limited cost threshold or planning to expand across the UK, the standard VAT scheme might serve you better long-term.
How to Join the FRS
Ready to cash in? You can:
- Apply online via the HMRC portal when registering for VAT.
- Submit Form VAT600FRS if you’re already VAT-registered. HMRC usually confirms within 30 days, letting you start saving pronto.
Final Bites
For UK chicken and chips shops with VAT-free purchases and standard-rated sales, the VAT Flat Rate Scheme at 4% can simplify your books and pad your wallet.
Before you commit, tally your goods spending and plan your growth. A quick chat with an accountant can ensure you’re picking the tastiest VAT option for your takeaway.
Craving more tips to grow your chicken and chips business? Contact us for expert advice on scaling your UK takeaway success!
Disclaimer
This article has just informative value; it does not provide legal, financial, or tax advise.
Although we work to guarantee accuracy, tax laws could change and personal situations vary.
For individual advice on VAT and the Flat Rate Scheme, we advise seeing a trained accountant or tax practitioner.
